Integrated Potato Chips paid a $1.20 per share dividend yesterday . You expect t
ID: 2652473 • Letter: I
Question
Integrated Potato Chips paid a $1.20 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 6% per year.
What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Integrated Potato Chips paid a $1.20 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 6% per year.
What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Year 1 Year 2 Year 3 DIV $ $ $ Selling price Total cash flow PV of cash flowExplanation / Answer
Suppose stock price, 3 years from now = P3
P3 = D4/(R-g)
D0 = $1.2
Dividend growth rate (g) = 6%
Discount rate (R) =???? (Not given in question)
It is assumed that, R = 10%
P3 = D4/(R-g) = D0*(1+g)*(1+g)*(1+g)*(1+g) / (.1-.06) = 1.2*(1+g) ^4/.04 = 1.2*1.06^4/.04 = $37.88 approx.
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